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5 Reasons Your Primary Home is Not an Asset…And 1 Reason It Is

For the longest time, it was very common that one’s primary home would be considered their biggest asset.

Until Robert Kiyosaki came along. And while I’m sure he didn’t invent the concept that your primary home is really not an asset, he certainly popularized it. He pounds this theory hard in his popular book, Rich Dad, Poor Dad, which is one of my favorites and started me and Selenid on the real estate flywheel!

However, this is still a somewhat hotly contested topic in personal finance circles. Some will argue very strongly that it is an asset. While others will go so far as to say you shouldn’t even include your primary home in your net worth calculations.

I’ve never explicitly discussed my full beliefs on the topic. But, by reading this blog, you’d get a bit of a mixed picture. On the one hand, I don’t recommend buying a primary home as an asset. On the other hand, I do include it in my net worth calculations.

So, I think it makes sense to dig in further…

5 reasons your primary home is not an asset

And I think it makes the most sense to start on this side of the fence.

1. It takes money out of your pocket

And that is the most functional, real definition of a liability that I have come across. And a liability is the opposite of an asset. Therefore, if your primary home meets the definition of a liability, it cannot be an asset.

primary home asset
Sweet? Yes. Asset? Probably not.

Case closed.

Obviously it’s not that simple, but you see the point. And any homeowner must agree that your home takes money out of your pocket. We all have that first experience where something breaks and we can’t call the maintenance person or landlord to fix it. We just have to do it ourselves.

There is also the Diderot effect. Once we own a home, we want to keep things inside the home that are nice. Sometimes we may even buy a home that’s a big above our price range. And we feel the need to buy nicer, more expensive “stuff” to match the home. This is another way that the house takes money out of our pockets.

Plus, we just tend to have more pride in owning a home and so tend to spend more on it in repairs and renovations. Things we could “overlook” in our rental, we just can’t overlook anymore.

2. It doesn’t produce cash flow

Your primary home does not generate cash flow. Meaning that it does not put cash into your pocket every month like an investment property does. I mention this because that is the main difference between an investment property and your residential property. There is often a misconception that any “real estate” is an investment or an asset. But that’s not the case.

The exception here would be if you are house-hacking. Meaning that you bought a multi-family home and live in one unit while you rent out the rest. If you do that, then yes, your primary home is an asset. As long as you analyze it using my criteria to make sure it cash flows before buying…

If it doesn’t put money in your pocket every month in the form of cash flow, it is not an investment/asset. Whether it is a primary home, second home, or a poorly purchased investment property.

And the reason is that…

3. Appreciation is speculation

I should be more specific…market appreciation is speculation. Some real estate investors will buy a property that they know doesn’t cash flow because they expect it to rise in market value via appreciation. This is not investing. This is speculating.

And by the same virtue, treating your primary home like an “investment” because you expect its value to rise does not make it an asset or an investment.

The market value is property’s fluctuates like the stock market. Yes, over the long term, values tend to rise. But in any given short term, the values sway spectacularly based on multiple factors including mortgage rates and the overall economy. We’ve seen this happen in the 2008 housing crash as well as more recently with the meteoric rise of values in 2020-2021ish and their continuing slump after.

Bottom line…just because your primary home can rise in value does not make it an asset.

4. You don’t really own your home

I don’t love saying this as a home “owner” myself. But do we really own our homes? No way!

We just rent them from the bank.

That’s how a mortgage works. Think about it. What happens if you miss your mortgage payments? The bank will re possess your home and you will have to move out. Say goodbye to any “equity” you thought you had in the home. That’s all gone. Because the bank now – and really always – owned it.

So, don’t kid yourself. If you have a mortgage, you (and I include myself here) don’t own your home. You rent it from the bank. And that’s ok. But it certainly is also a huge reason why your primary home is not an asset.

So, does that mean that if you own your home outright it is an asset? Kind of…maybe, but not really, because…

5. What do you have if you sell your home?

I often hear people say that they have a ton of equity in their home like that makes them wealthy. Because if you break it down, it really doesn’t. Because, what happens if you sell your home and tap, let’s say $1 million in equity?

Well, first, you’re gonna get taxed to a certain degree depending on how much equity you have. Plus you gotta pay realtor fees.

But, for the sake of argument, let’s say this is $1 million after taxes and fees. What does that make you? It makes you a person with $1 million sleeping on the street. Because you still need to buy another place to live!

And more typical than not, people upgrade their primary homes. So they tap their equity just to sink it in another, usually more expensive home that requires a mortgage on top of their down payment.

So, your home equity rarely makes you more actual wealth. And in the worst case scenario can actually lead you to take on more debt, adding an additional liability!

I really don’t mean to be a downer

But this is just the reality of the situation. In general, your primary home is just not an asset in any real sense.

It is not a wealth builder. And you should not look at it as such.

Again, I’m not saying not to buy a house. I did and you can see exactly how and why here.

Instead, look at it for what it is, more of a liability. And manage it as such. Buy within your means. Make sure you can cover the payments in your budget while still being able to meet your financial goals.

And pay it off aggressively to minimize your debt and liabilities.

However, I do believe that there is one important exception…

1 reason why your primary home is an asset

Let’s say that the sh*t really hits the fan. You find out you will lose your job. So does your partner. You have no income at all. And no immediate prospects. There are no other assets you can tap. You are facing utter ruin.

What can you do?

Well, if you have a primary home, you could sell it. And you could thus tap whatever equity you have built up in the house plus any potential equity via market appreciation upon your sale.

And then, instead of just buying a new home, you could rent modestly and use the remainder to cover expenses until you can get back on your feet.

In this worst case scenario, your primary home doesn’t work kind of like an asset. The problem is that this is a scenario that none of us ever want to find ourselves in. But it is somewhat nice to know that we have this as a back up option.

And that’s why I still include my primary home in my net worth calculations even though I don’t really this it is one!

Here are some additional posts on assets, liabilities, and growing your net worth!

What do you think? Is a primary home an asset? Why or why not? Do you include it in your net worth calculations? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    8 thoughts on “5 Reasons Your Primary Home is Not an Asset…And 1 Reason It Is”

    1. Great post, Jordan.

      Another reason that your house is not an asset is property taxes. If you stop paying them your local city/county government will take your house away from you.

    2. I agree, in the financial growth sense, with your analysis. And now we own our home outright, we still have to pay tremendous property taxes which certainly puts in the category of liability.

      What is missing here is that we have created an tremendous environment and community for our kids to grow up in. We gut renovated our home which was a probate sale and have been here for 18 years. For us, it has brought us joy and grounded our whole family and that has been priceless.

      • That makes it totally worth it! And I think you bring up an important point that I’d like to clarify. We bought our house with a mortgage as well, and it continues to bring us and our friends and family a greater amount of joy than the price tag. And that sense it has been a very intentional and well worth it purchase. But it is still not an asset, and I think that’s the important distinction to make as you have done!

    3. Your points are valid, but it is an asset, if a strange one. Everyone needs shelter, and anything that provides it is an asset. Once you pay the apartment rent on the 1st, you have an asset for a month. Once you own a house, you avoid rent – and that savings is income tax free. It still takes some money to live in it, but not as much per month. You don’t pay the mortgage (or the owner’s mortgage) anymore. That’s a tax free benefit. The technical term is “imputed rent”.

    4. None of the five are required to be an asset.
      1: Ongoing maintenance (airplanes, buildings, vehicles), property taxes, etc. is what many assets require. #1 is not only not a disqualifier, it’s likely a common characteristic of an asset. Both accountants and economists would agree on that.
      2: Assets don’t have to produce cash flow. Gold reserves are an asset on a central bank balance sheet. An Amazon warehouse (the structure itself) is an asset but doesn’t produce cash flows. Strictly speaking, an owner-occupied home does produce implicit cash flow because you don’t have to pay rent. That “implicit cash flow” is counted in GDP. It’s worth about 2 trillion dollars a year.
      3: Common assets on the corporate balance sheet are machines, airplanes, buildings, and vehicles. They don’t appreciate. They mostly depreciate.
      4: Assets are commonly financed. An asset often has a corresponding liability on the balance sheet. That doesn’t prevent it from being an asset.
      5: Assets have uncertain liquidation values. That’s true for almost all assets. One could argue that a nominal US Treasury bond has a risk-free final nominal value and TIPS have risk-free final CPI-adjusted values. But not many other assets satisfy this.

      I doubt that even a single asset on any corporation’s or household’s balance sheet satisfies all 5. You seem to limit the asset definition to include only financial investments. But even that fails. VTSAX doesn’t satisfy #3,#5, and only produces under 2% annually under #2. So, I wonder, what’s an asset that satisfies all 5 criteria?

      • Appreciate your breakdown. My definition Simpler: it’s just Something that you own that put money in your pocket. Cashing Real Estate, does that. Appreciating us that’s like gold do that although that is still more speculative than I like to consider for an asset. Tucci, financial freedom I honestly don’t think the definition has to get more convoluted than that…

        • Noted. But “asset” is an established term. It has meaning in accounting, finance, and economics. In all those fields, an owner-occupied home is an asset. What’s next? Someone claims a Toyota is not a car, according to their own definition?

          Besides, most owner-occupied homes have positive cash flows when you include the implicit rental income. Think of it as a rental property you rent to/from yourself. Moreover, with an owner-occupied home, you can more easily satisfy #5 due to the $500k exemption for capital gains. So, if you deem a rental property satisfying #5, then so does an owner-occupied home.

          But I agree that not all homes have good IRRs. Conspicuous consumption/overconsumption is the problem.


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